#71 Examples of Creative Customer Segmentation
Michael Porter advocates that companies must aim be to unique (not the best). Customer segmentation is one of the most underrated strategies available to companies who aim to be unique. Successful companies embrace the diversity in the needs of customers and focus on a need that does not have an acceptable solution and demand for that need is growing very fast.
These companies usually do not focus on simple or common segmentation strategies like demographics or geography. They usually go after use cases or unaddressed needs. Here are some examples of companies who have become successful by focusing on being unique.
Stripe
The Collison brothers realised how hard it was for companies to accept payment online - especially if you were not an app on the App Store / Google Play. Companies needed to dedicate a team of developers to work on accepting payments (instead of the core solution that the company offers). Armed with this insight and the introduction of "PayFac", they built a solution that made it really easy for developers to integrate with Stripe’s payment gateway. Additionally, they focused on developing specific solutions around rapidly growing use cases - SaaS subscriptions and marketplaces. From an outsider's perspective, payments seemed like a crowded space. Most companies were focused on selling to the CFO/CXO not developers (and not focused on the new use cases).
Stripe focused their products on very distinctive segments:
The needs of developers - people who were responsible for implementing the functionality. This enabled them to have a differentiated strategy around ease of integration, testing, and maintenance
The needs of a specific set of customers that was emerging and growing extremely quickly (like SaaS products and marketplaces)
Snapchat
Snapchat realised that pictures were being used to communicate by teenagers (unlike older folks who used pictures to store important memories). Hence, they decided to focus on the need for instant expression - showing your friends where you are and how you are feeling right now via pictures. They focused on the need for privacy and ephemerality to differentiate themselves from other social networks.
By focusing on picture based communication/messaging for a specific audience, Snapchat was able to differentiate against other messaging and social networking products.
MongoDB
MongoDB focused on building a solution for developers who wanted to build applications that handles large volumes of data and not knowing what the data would look like. Additionally, these developers wanted to build these applications quickly (reduce time for development). MongoDB was able to grow by segmenting the market around this need.
Segmenting a generic market into sub-segments around a specific use case or situation, helped MongoDB to gain traction quickly
Shopify
Tobias Lutke discovered how hard it was to build a web (online) store when he decided to sell snowboards online. He realised that other entrepreneurs will not have the technical capability that he had to build stores. Some investors turned him down as they thought the market was too small! They thought that Shopify’s solution could be targeted only at existing online stores (around 50K stores at that time). Tobias focused on new entrepreneurs and building solutions that answered the question - How to build software that makes it easier for people who are not technologists to start companies? This is a completely different way of segmenting the market.
Understanding the constraints and unaddressed needs faced by a specific segment helped Shopify to provide a differentiated platform and compete effectively against behemoths like Amazon